A budget deficit occurs when expenditures exceed
Most of todayʹs federal debt was run up by government borrowing during
Approximately what percentage of the annual federal budget pays interest on the national
Which of the following is NOT currently one of the major sources of federal revenue?
In Pollock v. Farmerʹs Loan and Trust Co. (1895), the United States Supreme Court ruled that
the income tax was unconstitutional.
The Sixteenth Amendment, ratified in 1913,
explicitly permitted Congress to levy an income tax.
A(n) ________ is a policy document allocating taxes and expenditures, or a series of goals with
price tags attached.
A budget is
a policy document allocating burdens (taxes) and benefits (expenditures).
Congress was officially given the power to levy an income tax through the
The federal governmentʹs budget is mainly
a policy statement that allocates burdens and benefits by attaching price tags to policy
According to Aaron Wildavsky, budgeting is a process most concerned with
translating financial resources into human purposes.
Which of the following is NOT the responsibility of the Internal Revenue Service?
establishing the annual tax rates that Americans of different incomes must pay
provide the largest source of federal revenue.
In order of decreasing amounts, the sources of federal revenue include
individual income tax, social insurance receipts, borrowing and corporate income tax.
Corporations today pay
income taxes which account for much less federal revenue than individual income taxes
The income tax is generally progressive, meaning that
those with more income pay higher rates of tax on their income.
Social Security taxes are
paid for by employees and employers.
Social insurance taxes
are earmarked for a specific purpose.
The fastest growing source of federal revenue has been
Social Security taxes.
The government borrows money principally by
Who can purchase United States government bonds?
) financial institutions
D) mutual funds
The federal debt
consists of all the money borrowed over the years by the national government and still
The federal debt in the United States
has increased due to the budget deficit caused by the difference between revenues and
Unlike state and local governments, the federal government is borrowing primarily for
its day-to-day expenses.
________ are revenue losses attributable to provisions of the federal tax laws which allow a
special exemption, exclusion, or deduction.
Tax expenditures consist of
tax exemptions, deductions, and exclusions.
The federal income tax deduction for mortgage interest on an owner-occupied home is an
example of a
An example of a tax expenditure is
a tax deduction for the mortgage interest paid by homeowners.
The Office of Management and Budget estimates that the total tax expenditures is more than
________ of the federal governmentʹs total receipts.
Tax expenditures tend to most benefit
middle- and upper-income people and corporations.
Which of the following statements about President Reaganʹs 1981 tax cut is FALSE?
Corporate taxes were increased.
Which of the following statements about President Reaganʹs 1981 tax cut is TRUE?
It provided new tax incentives for personal saving and investment.
Which of the following was NOT a provision of President Reaganʹs 1985 tax simplification
It increased the number of tax expenditures available to businesses.
Beginning in 1985, federal income taxes were ________ to the cost of living, so that
government no longer got a larger percentage when inflation pushed incomes into higher
brackets while the tax rates stayed the same.
President Reaganʹs 1981 tax cuts were most beneficial to
In 1993, Congress agreed to President Clintonʹs proposal to
raise the income tax rate for families in the highest income brackets
The United States governmentʹs annual budget is now approximately
Compared to most other countries with developed economies, the national, state, and local
governments in the United States tax
Compared to other Western nations, Americaʹs total government expenditure as a percentage
of the Gross Domestic Product (GDP) is
one of the smallest.
Which of the following countries have the smallest total tax revenues as a percentage of their
gross domestic product?
The federal budget consumes ________ of Americaʹs gross domestic product.
Americaʹs national, state and local governments spend an amount equal to ________ of the
During the 1950s and early 1960s, over half the federal budget was spent every year on
A) agricultural subsidies and programs.
the Department of Defense.
From the mid-1960s to the early 1980s, the biggest change in government spending was the
increase in social service expenditures and decline in defense spending.
The military industrial complex refers to
the close relationship between defense officials and the corporations that supply their
The budget of the Department of Defense
decreased in the 1990s.
The purchasing of military hardware is known as
The biggest expenditure in the federal budget today is
income security programs
The Social Security Act, which set up the Social Security system, was passed in
The Social Security Act was passed under the administration of President
Franklin D. Roosevelt.
In 1965, ________ was added to the Social Security program to provide hospital and physician
coverage to the elderly.
provides both hospital and physician coverage to the elderly.
The biggest slice of the federal budget pie belongs to
income security expenditures.
By 1990, the Social Security system was financed by a payroll tax of
over 15 percent.
A major feature of incremental budgeting is that it
provides small increases in the current budget over the previous yearʹs budget.
An example of incremental budgeting is
giving an agency a little more than it had last year
Which of the following is not a feature of incremental budgeting?
Agencies must justify their entire budget request.
________ refers to the concept that in the spending appropriations process, the best predictor
of this yearʹs budget is last yearʹs budget plus a little bit more.
The most prevalent model of budgetary decision making in practice is
Which of the following is NOT associated with incremental budgeting?
An agency or program must prove it still merits its very existence every year.
Budget items mandated by law or by a previous obligation are known as
Social Security payments are an example of a(n)
An ʺuncontrollableʺ expenditure in the federal budget is defined as
an expenditure that is required by current law or a previous government obligation to
people automatically eligible for some benefit.
Social Security programs, interest on the national debt, and military pensions are examples of
The biggest uncontrollable expenditure in the federal budget is
the Social Security system.
An estimated ________ of the federal budget is considered uncontrollable, unless Congress
changes a law or existing benefit levels.
The ultimate power to determine how much the government will tax and spend, and what it
will spend taxes for, lies with
In the House of Representatives, it is the ________ Committee that writes tax codes, subject to
the approval of Congress as a whole.
Ways and Means
Agencies invariably pad their budget requests because
they want the almost inevitable budget cuts to be bearable
In the Senate, the ________ Committee is responsible for writing tax codes, subject to the
approval of Congress as a whole.
The budget cycle begins in the executive branch ________ months before the fiscal year begins
The Director of the Office of Management and Budget
is a presidential appointee requiring approval of the Senate.
The ________ is responsible for supervising preparation of the federal budget and advising the
president on budgetary matters.
Office of Management and Budget
Until Congress passed the Budget and Accounting Act of 1921,
agencies of the executive branch sent their budget requests to the secretary of the
treasury, who forwarded them on to Congress, with the president playing little or no role
in the entire process.
Before the president submits her budget to Congress, the Office of Management and Budget
(OMB) coordinates the requests of
The heads of executive agencies send their budget requests to the
Office of Management and Budget
Agenciesʹ behavior and budgets are audited, monitored, and evaluated for Congress by the
General Accounting Office.
The Office of Management and Budget parcels out money to government agencies and is
Which of the following statements about the Office of Management and Budget (OMB) is
The OMB is one of the few government agencies created by the Constitution.
Once the Office of Management and Budget has prepared the federal budget,
the president makes revisions and submits it to Congress.
According to the Constitution, all federal appropriations must be authorized by
The Congressional Budget and Impoundment Control Act of 1974 set up all of the following
the Office of Management and Budget.
The Congressional Budget and Impoundment Act of 1974 requires that
Congress agree on a budget according to a fixed schedule, with target figures for the total
The congressional equivalent of the Office of Management and Budget is the
Congressional Budget Office.
One of the important purposes of the Congressional Budget Act of 1974 is to
force Congress to consider the budget as a whole rather than in terms of individual
The main purpose of the Congressional Budget Office is to
advise Congress on the consequences of its budget decisions.
To set a limit on total government spending, both houses of Congress are required to pass a(n)
________ every April, binding Congress to a total expenditure level, or bottom line, of all
federal spending for all programs.
A budget resolution
sets limits on expenditures based on revenue projections.
Congress attempts to bind itself to a total expenditure level that should form the bottom line of
all federal spending for all programs by passing
a budget resolution.
Budget ________ revises program authorizations to achieve required savings
A budget reconciliation
revises program authorizations to achieve required savings.
An ________ bill is an act of Congress that establishes a discretionary government program or
an entitlement, or that continues or changes such programs.
To actually fund a program, Congress must pass an ________ bill.
Which of the following would be a specific example of an appropriations bill?
a bill funding the Department of the Interior for the fiscal year
Failing to meet its own budget timetable, Congress has frequently resorted to ________, which
are laws that allow agencies to spend at the previous yearʹs level.
An authorization bill
establishes, continues, or changes a discretionary program or an entitlement.
In order to actually fund programs established by authorization bills, Congress must pass
an appropriations bill.
The Balanced Budget and Emergency Deficit Control Act called for the president to order
________, if Congress failed to meet specific deficit-reduction goals.
The Gramm-Rudman-Hollings Act
mandated maximum allowable deficit levels for each year until 1993, when the budget
was to be balanced.
In 1990, Congress split discretionary spending into three categories. Which of the following
was NOT one of the three categories?
Near the end of 1990, Congress approved a major change in the making of budget policy that
shifted the focus from cutting spending to
controlling increases in spending.
By 2002, the budget deficit had increased again due to
the first Iraq war.
Some economists argue that less affluent voters will always use their votes to support public
redistribute benefits from the rich to the poor.
________ are not unwilling victims of big government and its big taxes in a democracy, they
are at least its co-conspirators.
Research has found that the public sector expands principally
in response to changes in economic and social conditions that affect the publicʹs
preferences for government activity.
Economists Allen Meltzer and Scott Richard argue that the cost of government grows because
people in a democracy use the government to secure benefits.